According to Preqin’s Funds in Market online service, there are currently 58 distressed private equity funds in market, cumulatively targeting $41bn to invest in distressed debt, turnaround and special situations. Twenty-four of these funds have held an interim close so far, raising a total of $7bn.
2014 is expected to be a strong year for private equity firms with a generally improving economic outlook leading to an increased level of confidence across the globe. However, given the nature of the investment strategy, economic recoveries could result in a more challenging environment for distressed private equity funds in 2014. Preqin’s data shows how 2013 was a poor year for distressed private equity fundraising and this trend could well continue with a shortage of potential deals that require turnaround. Furthermore, the increasing availability of debt in Europe and the popularity of ’amend and extend’ arrangements continues to delay the flow of distressed opportunities.
Conversely, Preqin’s Fund Manager Profiles online service shows that distressed private equity fund managers have record-high levels of estimated dry powder at their disposal, with an aggregate amount of just under $76bn available to invest across the globe in the coming year. The value of non-performing loans in Europe alone has increased drastically over the past year, which could signal a host of distressed debt deals. Coupled with $16bn of estimated dry powder available to European distressed private equity fund managers, 2014 could surprise many in becoming a strong year for this investment class, particularly in Europe. This confidence is evidently matched by the private equity firm KKR, whichrecently held a final close on $2bn for a primarily Europe-focused special situations fund.
Preqin’s Funds in Market online service shows that European fundraising for distressed private equity is indeed regaining momentum from a poor year in 2013. Last year, primarily Europe-focused funds raised only $3bn collectively, whereas there are currently 22 funds in market hoping to secure aggregate commitments totalling just under $10bn. Taking into account the KKR Special Situations Fund and the estimated $2bn collected by Europe-focused funds in market which have already managed to hold at least one interim close, the value of European distressed fundraising is well on the way to surpassing 2013 levels.
Both scenarios of improving economic conditions and improving distressed private equity fundraising levels will herald an interesting year for distressed private equity investing, as the two factors may indeed work against each other with a lack of potential deals dampening the effect of a substantially high level of capital available to invest in distressed debt in 2014.